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China Is U.S.'s 'Central Challenge'

By

Jeffrey Sparshott

Updated Nov. 15, 2010 12:01 a.m. ET

WASHINGTON—The U.S. relationship with China will be the "central American challenge going forward," as the U.S. works to redevelop its economy, White House National Economic Council Director Larry Summers said on Monday.

Larry Summers at the 2010 meeting of the Wall Street Journal CEO Council in Washington.
Reuters

"A reading of the long sweep of history suggests that rapidly transforming economies in a rapidly transforming global system produce histories that are not always happy ones," Mr. Summers said at The Wall Street Journal CEO Council. "Our wisdom, their wisdom, the way in which we interact is going to be of the utmost importance."

"Ultimately, there is going to be one thing that is most important, and that is how the world sees the power of our example. That's going to depend on our success in our strategy of domestic renewal," he added.

At the WSJ CEO Council event in Washington, Larry Summers discusses China's economic influence and how it will affect the U.S.'s global standing.

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Mr. Summers, who will leave the White House at the end of the year, said China's rising economic and political might presents the central challenge facing the world.

The history of the early 21st century "will be about how the world adjusted to the movement of the theater of history toward China," Mr. Summers said.

Underscoring the tension between the countries, Min Zhu, special advisor for the International Monetary Fund in Washington and former deputy governor of the People's Bank of China, told the same forum that the weight of global GDP is shifting toward China and other fast-growing emerging economies while richer nations still face high debt and weak growth.

Given current trends, emerging markets and developing countries will account for 60% of global gross domestic product in six years, he said. "It is a different world," Mr. Zhu said.

Robert Diamond, head of Barclays PLC, said U.S. businesses could pick up the mantle but lack the confidence to start hiring because of concerns the country isn't on the right path with spending, deficits and taxes.

Meanwhile, China is moving up the value chain into high-tech capital goods and is poised to account for about a third of global manufacturing of advanced machinery and equipment within a decade, from about 8% today, Mr. Zhu said. "China will probably lead a global manufacturing restructuring. That will be a big impact for advanced economies, particularly for economies that want to export tech goods."

Mr. Summers, facing a group of American executives, many of whom are looking to capitalize on overseas growth, ended his remarks with an appeal to think about their role as "citizens."

The last election was partly a reaction against President Barack Obama's policies, Mr. Summers said, but it was also a "an important rejection of elites ... that were seen as more citizens of Davos than of their countries."

Corporate America should "think very hard about their obligations as citizens of this country and to think very hard about how through their activities they can make it work for all of our citizens," Mr. Summers said.